U.S. Treasury to Review Plans for $43 Million in Hardest-Hit Funds for RI
Providence, RI – June 2, 2010 – (RealEstateRama) — Thousands of Rhode Islanders who are struggling to keep their homes will be eligible for financial help from the U.S. Treasury by early autumn of this year.
Following February’s announcement that Rhode Island will receive $43 million in “Hardest-Hit Funding” to help more homeowners avoid foreclosure, Rhode Island Housing – the organization charged with developing a plan to best utilize the funds – convened a “working group” of partners from state agencies, lenders, non-profit organizations, municipalities, and businesses to come together to design effective programs and leverage these funds, in order to help as many Rhode Islanders as possible.
The detailed proposal was submitted to the Treasury in advance of the June 1, 2010 deadline. Discussions will continue between Rhode Island Housing and the Treasury over the next few weeks. Funds are expected to be made available in the weeks following Treasury approval.
The working group, most of whom have experience working with those in need of housing help, provided thoughtful insight into designing several flexible, targeted and measurable programs which would be funded under the Emergency Economic Stimulus Act of 2008. Although final details of the proposed plan are pending Treasury approval, the program focuses on preventing avoidable foreclosures targeting families struggling to keep their homes in the face of job loss or other financial set-backs; seniors who are struggling; and victims of the recent flood disaster. A portion of the funds will also help transition families for whom finding an alternative home is the best option.
“We are grateful once again to our Congressional delegation for pushing to obtain these important funds for Rhode Island and to the Treasury for recognizing the severity of the housing and economic crisis here, including high unemployment and significant erosion of home values,” says Richard Godfrey, Executive Director of Rhode Island Housing. “By coming together with a common goal, the dedicated members of the working group combined not only their skills but also their knowledge base of who needs the most help. Their input, coupled with the experience we have gained through our HelpCenter and in working with our customers, has helped us create a plan to leverage these funds to achieve maximum results and keep as many Rhode Islanders in their homes as possible. Officials at the Treasury have been extremely helpful in providing guidance to us in preparing our plan.”
“Citizens Bank is pleased to participate in this working group to design an effective program for Rhode Island’s most affected homeowners,” said Jeanne Cola, Director of Community Investment for Citizens Bank. “Bringing together community members from public, private and non-profit sectors to leverage both intellectual and financial resources always yields good ideas.”
“We feel very confident that this proposal addresses the needs of those who need our help the most,” says Sharon Conard-Wells, Executive Director of West Elmwood Housing Development Corporation and member of the working group. “In bringing together such a diverse cross section of people – residents, advocates, non-profit organizations, for-profit organizations, and representatives from the private and public sectors – we have the best chance of being successful in our mission.”
“Everyone really listened to each other and successfully balanced lots of ideas for how the funds could be best spent to serve the greatest number of Rhode Islanders in distress,” says Joe Garlick, Executive Director of NeighborWorks Blackstone River Valley and working group member. “It was great to have the opportunity to help design the program with Rhode Island Housing from the ground up. Too often, these things get created in a vacuum without community input.”
“Unlike other economic recovery spending that went to large financial institutions and worked to stabilize the broader economic picture, these dollars will directly help thousands of Rhode Island homeowners,” adds Godfrey. “Still, although $43 million seems like a lot of money, it is nowhere near enough to help all those who are at risk of losing their homes right now. So we will continue to seek out new funding sources and new ways to help. Our proposal includes the possibility of accommodating contributions from Rhode Island’s lending community.”
About the proposed plan
Knowing that tens of thousands of Rhode Island homeowners have experienced a financial setback and are at risk of foreclosure, the goal in designing the proposed plan was to assist the greatest number of families in an amount sufficient to have a significant likelihood of preventing foreclosure. The amount of assistance is targeted at $6,000 per household, although additional assistance may be available in some instances. The proposal is estimated to provide assistance to 5,000 families.
Even without funds to contribute directly toward a resolution between the borrower and lender, through the Rhode Island Housing HelpCenter, the agency has helped thousands of Rhode Island borrowers negotiate with their lenders. With these funds to add, Rhode Island Housing’s hope is to work towards more favorable outcomes for homeowners seeking assistance.
“In a state as compact as Rhode Island, avoiding the foreclosure of 5,000 homes will have tremendous benefits for the communities and the state overall, as well as for the individual families and lenders who are helped,” adds Godfrey. “Avoiding foreclosure losses will also positively impact local banks which can make new loans within our communities. And, since many of the homes at risk of foreclosure include apartments in owner-occupied multi-family properties, we expect that more than a thousand renters will avoid eviction.”
Under the terms of the proposal, in order to qualify for the funds, homeowners will have to meet guidelines for hardship and income levels. If the volume of requests for assistance under the program exceeds the available funds, priority will be given to the communities that have the highest levels of unemployment and foreclosures. Otherwise, financial assistance will be available to eligible hardest-hit borrowers throughout Rhode Island.
Borrowers who are dealing with large out-of-state loan-servicing companies, should work through local HUD-approved counseling centers, such as Rhode Island Housing’s HelpCenter, which will provide assistance at no cost. Borrowers who have loans with local lenders should work with them to seek the extra help. Borrowers must be willing to provide complete and accurate information on their financial situation and are expected to contribute all of their own financial capacity to the transaction. Generally, this means that they must contribute at least 35 percent of their household income toward the mortgage.
Proposed plans include:
Loan Modification Assistance for HAMP Customers
HAMP is the primary federal program for major lenders. It is designed to assist at-risk homeowners avoid foreclosure by reducing monthly mortgage payments through loan modifications. Under the terms of the HAMP program, the federal government provides direct incentives for homeowners and lenders to renegotiate mortgage payments to a sustainable level. The lender is responsible for reducing payments based on the borrower’s current income, and the federal government then shares in a further reduction. Lenders conduct an analysis comparing the cost of modifying the loan pursuant to HAMP guidelines versus the cost of foreclosure. There is evidence that, in many circumstances, an additional investment of less than $10,000 can reverse an adverse decision arising out of that analysis.
This program will provide up to $6,000 in assistance to allow the homeowner to qualify for a HAMP modification. An additional $2,500 may be available under the Temporary and Immediate Assistance Program (see below) for special circumstances.
Loan Modification Assistance for Non-HAMP Mortgage Customers
Many local and regional lenders do not participate in the HAMP program. This proposed program will allow up to $6,000 to assist the borrower and lender achieve a workout. An additional $2,500 may be available under the Temporary and Immediate Assistance program (see below) in special circumstances.
Temporary and Immediate Homeowner Assistance
There are many situations where payments made by or on behalf of the borrower toward the first mortgage are not sufficient to prevent an avoidable foreclosure. These include situations where a borrower has had a temporary loss of income or increase in expenses that have created a first mortgage delinquency or another delinquency that may result in a default under the first mortgage, which, if not cured, may result in foreclosure. This situation could arise even when the borrower’s current income may be sufficient to pay the first mortgage going forward. There are also situations where a borrower cannot provide the matching funds needed under a loan modification program, or where the borrower needs temporary supplemental mortgage payment assistance for the borrower and lender to agree on a mortgage modification. This is frequently the result of a temporary interruption in or reduction of employment.
The maximum amount of assistance under this program is $6,000 per household, but is limited to $2,500 when the maximum assistance has been provided under the other loan-modification assistance programs. The combined assistance permitted under these programs is $8,500 per household and may be made on a lump sum or monthly basis. Payments under this program may only be advanced upon a determination that such payment is essential to preventing an otherwise unavoidable foreclosure.
Moving Forward Assistance
In some circumstances, the best outcome for borrower, lender, and community may be for the borrower to relinquish the property in an orderly process. This assistance will take the form of a contribution to the primary or secondary lender to help facilitate a short sale or deed in lieu of foreclosure. It could also be used to help the borrower with relocation assistance, including a security deposit (provided that other available lender and/or federal funds are used first). Assistance under this program will be limited to $4,000 per family – $1,500 to facilitate a short sale or deed in lieu of foreclosure and $2,500 to assist the homeowner with relocation.
Hardest of Hardest-Hit Programs
This program would fund a number of sub-initiatives designed to aid homeowners in special circumstances to retain their homes, such as aid to seniors; assistance for flood victims; and assistance to owners of multi-family homes.